Question

1. If your portfolio expected annual average total return was 10% and long-term inflation was about 3%, what would your REAL average annual returns be with a 100% equity portfolio?
   1. 10%
   2. 7%
   3. 3%
   4. 5%
2. If you put your retirement funds in a savings account earning 0.5% and inflation was 3%, how much would you lose in value each year against inflation by not earning more than inflation on your retirement savings?
   1. 0.5% less 3% for minus 2.5%
   2. 3%
   3. 0.5%
   4. 10.2%

Answer 1

1)

Real average annual returns = Nominal returns - Inflation rate = 10% - 3% = 7%

Answer is b) 7%

2)

Savings account rate = 0.5%

Inflation rate = 3%

Loss in value every year = 0.5% - 3% = -2.5%

Answer is a) 0.5% less 3% for minus 2.5%